U.S. banks post biggest profit since Q2 2007:FDIC

VictoriaMcGrane

WASHINGTON (MarketWatch) -- U.S. banks reported their highest quarterly profit since mid-2007 for the first quarter, while overall lending activity decreased for the first time in four quarters, a bank regulator said, a sign that while the industry continues to heal from the 2008 financial crisis, its willingness to lend continues to lag.

In its quarterly report on the nation's banking system, the Federal Deposit Insurance Corp. said Thursday that the nation's 7,307 banks and thrifts posted net income of $35.3 billion in the January-March period, up 22.9%, or $6.6 billion, in the same quarter a year earlier.

As in previous quarters, the results were largely driven by banks putting aside less cash to cover bad loans, known as loan loss provisions, as well as higher noninterest income. Loan loss provisions fell by 31.6%, or $6.6 billion, from the same quarter a year earlier, to $14.3 billion.

Banks' overall lending activity fell slightly, declining 0.8% from the prior quarter, after growing the previous three quarters. Loan balances declined in most major categories during the quarter, led by credit cards, which had a seasonal drop of $38.2 billion, or 5.6%, the FDIC said. Still, loan balances were still 2.2% higher than a year ago.

"The overall decline in loan balances is disappointing after we saw three quarters of growth last year," Martin Gruenberg, the agency's acting chairman, said in prepared remarks. "But we should be cautious in drawing conclusions from just one quarter."

In a bright spot, industry revenue rose from the same period a year earlier, marking only the second increase in five quarters. The revenue growth was driven in part by gains from loan sales which were $2.3 billion, or 132.4%, higher than a year earlier. Changes in fair values of financial instruments, income from fiduciary activities and service charges on deposit accounts also contributed to the increase.

The FDIC said 772 institutions were on the agency's "problem" list at the end of March, down from 813 in December. The number of troubled institutions has been on the decline since the first quarter of 2011 and is at its lowest level since the end of 2009.

During the quarter, 16 banks failed, the smallest number of failures since the fourth quarter of 2008. Meanwhile, the amount of money in the fund that the agency uses to cover the cost of failed institutions rose to $15.3 billion as of the end of March, up from $11.8 billion at the end of December.

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